Common sense contractual interpretation… & Lladro
Welcome to our Spring newsletter. I think sometimes I may be a little unusual in my reading preferences. And insurance can provide us with some fascinating scenarios, particularly following the outcomes of legal proceedings. Such was a recent case involving Lladro. Allow me to share the story with you, perhaps for some relaxing weekend reading when not watching rugby...
Lladro - Are these works of art?
That was the question the High Court had to decide in Newbery v AA Insurance Ltd  NZHC 2457, the only Christchurch earthquakes contents claim to date to be tried in the High Court.
The insured owned 31 pieces of Lladro porce-lain which were damaged in the earthquakes. The insured had cover for his household contents but had not specified the Lladro on his policy. Unless specified, the policy limited cover for “works of art” (including sculptures & ornaments) to $5,000 per item or $20,000 in total per event. The problem for the insured was the Lladro was agreed to have a replacement cost of over $200,000.
Did it have to be specified?
Yes, said the High Court, which held that any reasonable person wanting to insure Lladro items of this value under the policy would have realised the items were "ornaments" falling squarely within the works of art definition in the policy. The policy defined works of art as: “Pictures, paintings, prints, sculptures, ornaments, tapes-tries, antiques (other than furniture), hand woven mats or rugs”, & the policy limits on cover applied to all items within this description.
The issue at the centre of the dispute ought to have been a relatively simple contractual interpretation point as to whether or not the Lladro fell within the categories in the works of art definition. The way the case unfolded highlights issues over the types of evidence which should & should not be put before the Court in a policy interpretation case, & the perils of an expert overstepping his or her role & giving an opinion on what an insurance policy means.
The insured gave evidence he did not consider it fair or reasonable for an insurer to use the term “ornament” in a policy because he said it can apply to “almost anything”. He also gave evidence about what he understood the terms ornament & sculpture to mean. In this, he sought to tread a fine line between “ornaments” & “sculptures”, arguing “ornaments” referred to low value bric-a-brac items, whereas the term “sculptures” only applied to one-off works by a named artist, not factory produced items such as Lladro.
The insured called expert evidence from a well-known art auctioneer to support his argument about the meaning of “ornament” & “sculpture”. The expert went on to express an opinion on how the words of the policy should be interpreted. The Court was not impressed with this, & Justice Nation stressed the role of the expert witness was to help the Court understand how the terms “sculpture” & “ornament” were ordinarily used in the particular business in which the expert had experience, not to advocate for the interpretation of the policy which the insured sought to establish.
The High Court also had little regard for the insured’s evidence about what he understood the words in the policy to mean, & what he thought a fair & reasonable interpretation would be. As the judge put it, the parties are “stuck with the words in the policy”. One party’s expectations as to a fair & reasonable interpretation are irrelevant in determining the ordinary meaning of words used in a policy, as the policy has to be interpreted as a reasonable & properly informed third party would interpret it. Given this was a standard consumer policy & not an individually negotiated contract, the focus was on the ordinary meaning of the language used in the policy, not on any special meaning which the parties (or an art expert) would have understood the words to have.
In considering what the terms “ornament” & “sculpture” meant in this policy, the purpose of the works of art definition was important. Items caught by the definition only had limited cover unless they were specified, & the definition was intended to catch high value items. Specifying of items enables the insurer to be better informed about the risk it is assuming, & avoids surprise in the event of a claim for damage to expensive items. The sensible conclusion of the Court was one which any reasonable insured would have known ~ items of this value were intended to have only limited cover unless specified.
Regretfully, there are extremely few people who understand such specifics within insurance policy wordings. This is compounded by direct insurers & agencies such as banks simply posting documents to their clients suggesting the client will actually understand the wording, or if they have trouble, refer them to a website which can be equally confusing.
In the corporate environment of today, which primarily involves commodity trading of product & people; with the main basis of business being EVA (Economic Value Added) & Return on Investment (for shareholders), unfortunately, many people neither have the time, inclination or ability to interpret such documents or methods.
Hence the reason & basis for obtaining assistance from a professional to assist you through the process. Reason is the capacity for consciously making sense of things, applying logic, establishing & verifying facts, changing or justifying practices; & this is what we do for you & on your behalf. We can assist you & explain why something is the way it is, why insurers do, think, or say something, or why they behaves a certain way.
In short, we are here to assist you by highlighting both the exposures & vagaries of policy wordings. The relevance alone of an insured Duty of Disclosure requirements for changes to a material risk or fact are fundamental to any new policy or even renewal. Something I suspect many people are totally unaware. Please feel free to get in touch if anything covered here requires clarification ~ or perhaps if you have any Lladro?
I hope everyone has a wonderful weekend & the conversation will be all positive on Monday following a rugby game in the early hours. If not, perhaps we can talk about something like Lladro?